Not Yet A Rainy Day

It's Time To Pare State Spending, Not To Raid The Emergency Fund

August 23, 2007

Slumping real estate values have victimized the state budget before and appear to be doing so again. That may complicate Gov. Tim Kaine's priorities. The guv has things - worthy things, to be sure - to do.

Tapping into the state Rainy Day Fund to get them done, however, is a nonstarter.

"Virginia is entering its fifth year of economic expansion," Kaine told the General Assembly money committees on Monday. "But we are now seeing the signs of slower rates of growth in jobs and income, and we expect moderate growth in the overall economy."

In short, the half billion dollar surplus of less than a year ago has turned into a $641 million shortfall for fiscal years 2007 and 2008. State agencies may face cutbacks. Administrative reforms may be in order. Initiatives - new mental health funding and Kaine's pre-kindergarten program - may endure tough sledding.

Still, that hardly describes the conditions that justify a reach into reserve funds constitutionally set aside for exceptionally dire circumstances.

Gov. Charles Robb entered office in 1982 in the midst of a recession. So did Gov. L. Douglas Wilder nearly 10 years later. It happens. You make do. You tighten up spending and cut back as necessary.

When cuts get down to core funding, threatening basic state services, then you look to alternatives. The Rainy Day Fund - or "Revenue Stabilization Fund," to be precise - emerged after legislators concluded that Wilder's cuts were too many and too deep. Something needed to be there to cushion the blow the next time around.

We're not there yet. Virginia's fiscal condition mirrors a general trend. Despite some random partisan sniping to the effect that Kaine's team mishandled the revenue forecasts, a declining housing market has put many state treasuries in a pinch.

Florida, for instance, doesn't have an income tax and leans heavily on sales tax revenues; when homes don't sell, other things - appliances and the like - don't sell either. As a result, the Sunshine State has a billion dollar hole in its budget.

Maryland, California, Illinois, Massachusetts and Michigan likewise face dwindling revenues, according to tax analysts contacted by Stateline.org, a project of the Pew Research Center that monitors state government issues. And you can bet that the current credit crunch in the mortgage markets won't help matters much, either.

Not that the current situation couldn't have been far easier. Kaine complained last winter about Republican plans to finance transportation borrowing with revenues from the general fund, which supports public education, health care and other vital services. He complained and then signed off on it.

Kaine also went along with Republicans in the House of Delegates on using surplus funds for transportation - a short-sighted proposition that GOP House leaders would have happily made even worse.

"Today, the Governor announced that Virginia has a surplus of $545 million," House of Delegates Speaker Bill Howell said on Dec. 15. "But by devoting just $161 million of these new revenue revisions to transportation, the administration has relegated transportation to the budgetary equivalent of the back burner ... the real disappointment is that Governor Kaine could have done so much more."

Much more. Meaning spending much more, but not covering it with new revenue. That was the same day Howell stridently urged Kaine to commit "to passing abuser fees, adding another $100 million in continuing revenues to alleviate traffic." Kaine carved down the likely proceeds to $65 million, but eventually yielded on the overall proposition. And didn't that turn out well?

Fiscal conservatism requires a respect for fiscal tradition. Fiscal tradition - restraint, prudence, adherence to time-proven financial principles - took a savage beating in the 2007 General Assembly, and now there's some residual pain.

It could be worse. Some choices will have to be made, and Kaine will have to support them with cogent arguments. Just to be helpful: A cogent argument would not include simultaneously cutting the budget to meet a shortfall, dipping into the Rainy Day Fund for additional revenue and initiating costly new programs.